Mexican Peso rallies for third day amid US economic woes

Mexican Peso registers gains third consecutive day, trading below 18.10 against the US Dollar.
Weaker US economic data, including disappointing ADP Employment Change and rising unemployment claims, weigh on the Greenback.
Bank of Mexico Deputy Governor Jonathan Heath echoes Fed's cautious stance on rate cuts, supporting the Peso.

The Mexican Peso extended its gains for the third straight day on Thursday after evidence that the US economy is slowing down weakened the Greenback. This ignited speculation that the Federal Reserve could begin its easing cycle this year, as some Fed officials commented that the dual mandate risks are more balanced. At the time of writing, the USD/MXN trades at 18.08, down 0.36%.

Mexico’s economic docket is light, yet the Peso was boosted by Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who wrote in an X post on Wednesday that he “agree[s] with Jerome Powell. More benign inflation data is needed before cutting rates. He said it for the Federal Reserve, but the same applies to the case of Mexico.”

Aside from this, US data on Wednesday disappointed investors. ADP Employment Change figures for June missed the mark and trailed May’s data, while the number of Americans filing unemployment claims rose, exceeding estimates and the previous week's data. This accentuated fears that the labor market is weakening, increasing the odds of a rate cut by the Federal Reserve.

Further data showed signs that the US economy is slowing as the ISM Services PMI plunged after hitting its highest level since August 2023, dived into contractionary territory,

Therefore, US Treasury yields tumbled, undermining the Greenback, which stands at 105.12 and is about to crack the 105.00 mark.

According to the CME FedWatch Tool, odds for a September 2024 cut lie at 66%, higher than a day ago's 63% chances.

Daily digest market movers: Mexican Peso rises further on US Dollar weakness

Banxico’s survey showed that economists estimate the Gross Domestic Product (GDP) to end at 2%, down from 2.1%. They expect Banxico to cut rates from 11.00% to 10.25%, up from 10.00% projected in May.
On Monday, Banxico Governor Victoria Rodriguez Ceja was dovish, as she said the evolution of disinflation can “allow us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”
Fed Chair Powell said the US economy made significant progress on inflation while adding that the risks of the Fed’s dual mandate are more balanced.
US jobs data witnessed ADP Employment Change in June, creating 150K jobs, missing the estimated 160K and the prior month 157K; while Initial Jobless Claims for the week ending June 29 was 238K, exceeding estimates of 235K, and the previous reading of 234K.
June’s ISM Services PMI plummeted to recessionary territory, from 53.8 to 48.8, the fastest pace in four years and its weakest since May 2020.

Technical analysis: Mexican Peso surges sharply as USD/MXN slumps below 18.10

The USD/MXN extended its losses to three consecutive days, with the pair clearing the next psychological support at 18.10, which exacerbated a test of the 18.05 figure earlier during the day. Momentum hints that buyers lost steam as depicted by the Relatives Strength Index (RSI), which points downwards about to pierce the 50-neutral line despite remaining bullish.

If USD/MXN drops further, the next target is the psychological level of 18.00. Breaking below this level would expose the next support at the December 5 high, which turned support at 17.56. Further decline aims for the 50-day Simple Moving Average (SMA) at 17.37.

Conversely, if buyers push the spot price above 18.50, it could rally toward the June 28 high of 18.59, potentially extending gains to challenge the year-to-date high 18.99.

Banxico FAQs

What is the Bank of Mexico?

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

How does the Bank of Mexico’s monetary policy influence the Mexican Peso?

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

How often does the Bank of Mexico meet during the year?

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.